NetApp Earnings Should Reveal Data Storage Challenges

Data storage vendor NetApp (NTAP), challenged by shifting market conditions and startup competitors, is scheduled to report earnings after the market close Wednesday.

NetApp designs, develops and markets networked storage systems and data management software. Its primary competitor is EMC (EMC), but NetApp has also been pressured by competition from developers of flash-based storage systems, as well as cloud-based providers of storage-as-a-service.

NetApp is reporting earnings for its fiscal third quarter ended Jan. 24.

The consensus estimate among analysts polled by Thomson Reuters is for revenue of $1.63 billion, even with the year-earlier quarter. NetApp has reported revenue growth in the low single digits for five consecutive quarters, after a long string of double-digit growth.

The consensus on earnings per share minus items is 71 cents, up 6%, a slowdown from the previous two quarters of double-digit EPS growth.

NetApp stock was up nearly 1% in afternoon trading in the stock market today, near 43.65. NetApp stock touched a 22-month high of 45.70 on Jan. 22, but it sports a so-so IBD Relative Strength Rating of 70.

The emergence of cloud computing presents both challenges and opportunities for NetApp. It created a boom in new storage startups that might challenge the company for market share. These include Nimble Storage (NMBL), Pure Storage, Nutanix and Tintri. But the emergence of cloud computing has also advanced the demand for more storage systems due to a rapid expansion in data creation in an increasingly digital world.

Brian Marshall, an analyst at International Strategy & Investment, in a research report last month maintained a buy rating on NetApp, with a price target of 48.

Of the competition, he wrote, "we believe NetApp has been quietly holding its own. We are also encouraged to see NetApp take steps to better position itself for public cloud environments."

Eric Martinuzzi, an analyst at Lake Street Capital Markets, has a buy rating on NetApp, with a price target of 49.

"Our research indicates key partners are doing better than expected and there has been good follow-through into the new year," he wrote in a research note.

"Discussions with regional and national resellers suggest a changing landscape as new entrants such as Pure, Nutanix, Nimble and Tintri, to name a few, begin to consume mind-share and technical resources with the resellers," he wrote.

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03/11/2015 06:19 PM ET

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